As global concerns build of an emerging market-led meltdown, panellists at the Cayman Alternative Investment Summit, which has been taking place in Grand Cayman this week (February 4-5), examined the true state of affairs in these economies, as well as the likely success of reforms aimed at shoring them up.
Chairing the debate, Jack Inglis, chief executive officer (CEO) of AIMA, outlined the negative sentiment infiltrating emerging markets at the moment, where equities have underperformed by 70 percent over the past five years. With emerging market stocks down 20 percent and currencies down 40 percent in the past two years, the outlook is bleak, he said, for an asset class which seems to alternate between offering huge hope and huge disappointment.
Anne Richards, global chief information officer (CIO) at Aberdeen Asset Management, said there seems to be a disconnect with the actual situation on the ground in emerging Asia, where despite times seeming as tough as ever, companies are not experiencing the same level of pain as they did in the Asian crisis.
“Net debt to equity is half of that in the developed world and valuation multiples are lower,” she said. “Sooner or later the fundamentals will come through.”
Richards also noted that the IMF is yet to change its growth forecasts for China, with 7 percent expected for this year and 6% for next year. “It is quite convenient and easy for policy makers to blame emerging markets for the world’s problems but that is just lazy,” she said.
Mark Hart, chairman and CIO of Corriente Advisors said that QE in the US had prevented a correction in China, while domestic savers had previously no reason to send money abroad. “China will still have to deal with the excessive borrowing by companies from banks at uncompetitive levels,” he said.
Interestingly, just 11 percent of Chinese savings are held abroad, he said, with Indonesia the next lowest at 32 percent and the US in the region of 200 percent. “Now there is credit risk and currency risk and there is real money and real savings trying to get out.”
Cayman Alternative Investment Summit, Jack Inglis, AIMA, Anne Richards, Aberdeen Asset Management, Mark Hart, Corriente Advisors, Cayman, North America